Big Banks Predicting Recession This Year

Jan 9, 2023Financial Literacy, News

More than two-thirds of economists at 23 big financial institutions that do business with the Federal Reserve are predicting that the U.S. will have a recession in 2023, and two others predict a recession in 2024. The institutions are basing their forecast on Americans’ spending their savings from the pandemic, a housing market in decline, and banks becoming stricter with their lending standards.

“We expect a downturn in global GDP growth in 2023, led by recessions in both the U.S. and the eurozone,” wrote economists at BNP Paribas SA in their 2023 outlook, “Steering Into Recession,” according to the Wall Street Journal. Other institutions that predict a recession include Bank of America Corp., Barclays PLC, TD Securities, and UBS Group AG.

Economists said the Fed is mainly responsible for the potential recession in its attempt to raise rates to slow the economy and curb inflation. It raised rates seven times last year, increasing its benchmark from a range of 0-0.25 percent to 4.25-4.5 percent. The Fed plans to continue raising rates this year, as inflation is still significantly higher than its desired rate.

Recent Fed data found that savings from the height of the pandemic fell from $2.3 trillion to $1.2 trillion, which indicates a potential recession. Analysts at Deutsche Bank predicted those savings to be completely exhausted by October.

Brett Ryan, senior U.S. economist at Deutsche Bank, said that consumer “demand is slowing and we think it will slow sharply as excess savings starts to run out and consumers are more stressed.”

Most economists think the recession will be mild, and that the Fed will raise interest rates in the first quarter, halt in the second, and start cutting rates in the latter half of the year, causing the economy and equity markets to rebound.

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